Chapter 14

Material Requirements Planning

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

Describe what MRP is and where it is

best applied.
Understand the source of the
information used by the system.
Demonstrate how to do an MRP
explosion.
Explain how order quantities are
calculated in MRP systems.

14-2

Enterprise Resource Planning (ERP) and

Material Requirements Planning (MRP)
Enterprise resource planning (ERP): a
computer system that integrates application
programs in accounting, sales, manufacturing,
and the other functions in a firm
Materials requirements planning (MRP): a
means for determining the number of parts,
components, and materials needed to
produce a product
MRP provides time scheduling information
specifying when each of the materials, parts, and
components should be ordered or produced
Dependent demand drives MRP
14-3

Operations and Supply Integration

Overview

14-4

Master Production Scheduling

The master schedule deals with end items
and is a major input to the MRP process
All production systems have limited capacity
and limited resources
The aggregate plan provides the general range of
operation, the master scheduler must specify
exactly what is to be produced

To determine an acceptable feasible schedule

to be released to the shop, trial master
production schedules are run through the
MRP program
14-5

The Aggregate Plan and the Master

Production Schedule for Mattresses

14-6

Time Fences

14-7

Where MRP Can Be Used

14-8

Material Requirements Planning System

Structure

14-9

Bill of Materials

Bill of materials (BOM): contains the

complete product description, listing the
materials, parts, and components along
with the sequence in which the product
is created
One of the three main inputs to the MRP
program

Often called the product structure file or

product tree because it shows how a
product is put together
14-10

Bill of Materials (Product Structure Tree)

for Product A

14-11

Bills of Materials Continued

Modular bill of materials: a buildable

item that can be produced and stocked
as a subassembly
Super bill of materials: includes items
with fractional options

14-12

Level Coding of Bills of Materials

14-13

The Inventory Status Record for an Item

in Inventory

14-14

MRP Explosion Process

1. The requirements for end items are
retrieved from the master schedule

These are referred to as gross

requirements by the MRP program

2. Uses on-hand balance with schedule of

orders to calculate the net
requirements
3. Using net requirements, it calculates
when orders should be received to
meet these requirements
14-15

MRP Explosion Process Continued

4. Find a schedule for when orders are actually
released

To account for lead time

5. Move to level 1 items

6. Gross requirements for each level 1 item are
calculated from the planned-order release
schedule for the parents of each level 1 item
7. Net requirements, planned-order receipts,
and planned-order releases are calculated
as described in steps 24
8. Repeat for all items in bill of materials
14-16

An Example Using MRP

Ampere, Inc., produces a line of electric
meters installed in residential buildings
Meters are of two basic types for different
voltage and amperage ranges
Some subassemblies are sold separately for repair
or for changeovers

The problem is to determine a production

schedule to identify each item, the period it is
needed, and the appropriate quantities
The schedule is then checked for feasibility,
and the schedule is modified if necessary.
14-17

Future Requirements for Meters A and B

and Subassembly D

14-18

A Master Schedule to Satisfy Demand

Requirements

1,000 + 250

Covers month

We are converting monthly demand on

the last slide to weeks where it will be
produced
14-19

Product Structure for Meters A and B

14-20

Number of Units on Hand and Lead Time

Data

14-21

Material Requirements Planning Schedule for

Meters A and B, and Subassemblies C and D

14-22

Example 14.1: Demand and Data

14-23

VH1-234
Week

Gross requirements

34

37

41

45

48

48

48

48

51

14

173

128

80

32

184

166

Schedule receipts
Projected available balance
Net requirements
Planned order receipts
Planned order releases

200

27

16

200

200
200

14-24

VH2-100
Week

Gross requirements

104

134

144

155

134

140

141

145

254

120

376

221

87

347

206

61

Schedule receipts
Projected available balance
Net requirements
Planned order receipts
Planned order releases

400

24

53

400

400
400

14-25

Light Socket
Week
1
Gross requirements

600

Schedule receipts

500

Projected available balance

905

305

305

Net requirements

305

400

200

405

205

205

205

95

Planned order receipts

Planned order releases

500
500

14-26

Lot Sizing in MRP Systems

Determination of lot sizes in an MRP system

is a complicated and difficult problem
Lot sizes: the part quantities issued in the
planned order receipt and planned order
release sections of an MRP schedule
Will look at four
1.
2.
3.
4.

Lot-for-lot (L4L)
Economic order quantity (EOQ)
Least total cost (LTC)
Least unit cost (LUC)

14-27

Lot-for-Lot

Sets planned orders to exactly match

the net requirements
Produces exactly what is needed each
week with none carried over into future
periods
Minimizes carrying cost
Does not take into account setup costs
or capacity limitations.

14-28

Lot-for-Lot Run Size for an MRP Schedule

14-29

Economic Order Quantity

Calculate reorder quantity based on

EOQ
EOQ was not designed for a system
with discrete time periods such as MRP
The lot sizes generated by EOQ do not
always cover the entire number of
periods

14-30

Economic Order Quantity Run Size for an

MRP Schedule

14-31

Least Total Cost

Least total cost method (LTC): a

dynamic lot-sizing technique that
calculates the order quantity by
comparing the carrying cost and the
setup costs for various lot sizes and
then selects the lot in which these are
most nearly equal
Influenced by the length of the planning
horizon
14-32

Least Total Cost Run Size for an MRP

Schedule

14-33

Least Unit Cost

Least unit cost method: a dynamic

lot-sizing technique that adds ordering
and inventory carrying cost for each
trial lot size and divides by the number
of units in each lot size, picking the lot
size with the lowest unit cost

14-34

Least Unit Cost Run Size for an MRP

Schedule

14-35